Florida Asset Protection Blog

Can Creditor Seize Alimony Payments

A divorced female reader submitted an interesting question about alimony payments. The reader relies on alimony payments from former spouse to pay most of her bills. She does not support a child, and therefore, she is not the head of a household. She is facing potential judgments from credit card companies as a result of her inability to pay some debts incurred during the marriage. She asks if her creditors could garnish her alimony payments.

The Florida Statutes do not exempt alimony from execution by creditors. Alimony in other context is considered to be a form of income. Therefore, if a debtor receiving alimony supported a child and was head of household the debtor could take the position that her alimony is protected under Florida’s wage exemption. This reader lives alone and is not head of household. There is no statutory exemption protecting her alimony.

Nevertheless, several Florida courts including both state courts and federal bankruptcy courts have issued decisions stating that alimony is not subject to claims of creditors or a bankruptcy trustee. These courts have held that it is against public policy to allow creditors to seize alimony. Much of Florida’s debtor exemptions are based on the policy to protect families. The protections are not designed to excuse debtors as much as protecting those financially dependent on debtors. Court decisions exempting alimony from garnishment probably reflect a policy of protecting single parent households who depend on alimony income.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida

Waiver Of Homestead Protections

Can you waive your homestead protection? The issued was recently addressed by the Florida Supreme Court in the case of Chames v. DeMayo. The Court pointed out that Florida’s Constitution expressly allows people to give up their homestead protection when they voluntarily pledge their homestead to secure a debt by mortgage deed. The Supreme Court in previous cases affirmed the right of a spouse to waive marital homestead rights before or during marriage. The present case addressed the situation where a debtor entered into a written contract with a creditor (in this case, a law firm) which contract waived the debtor’s homestead protection in the event the creditor took legal action to collect the debt. While affirming the narrow exceptions to homestead waiver stated above, the Supreme Court said that the homestead protection cannot be waived by contract with a creditor to enforce an unsecured debt. The Court overturned a contrary decision by one of Florida's district appellate courts.

Grantor Retained Annuity Trust As Asset Protection Tool

A caller described his asset protection plan designed by his financial planner. The caller had created a “grantor retained annuity trust” which he funded with about $500,000 within two years of being sued. The trust had been accumulating income, but the trust document named the grantor/debtor as the sole lifetime beneficiary. Income paid to the grantor from the trust would be in the form of an annuity for his lifetime. All annuities, in whatever form, are exempt from creditors in Florida. The caller’s estate was below the level susceptible to estate tax.

I told the caller I believe creditors could successfully attack the creation of the GRAT as a fraudulent conversion. One of the main indicators of fraudulent transfer or conversion is the debtor/transferor’s retention of control or enjoyment of the money. By naming himself as the sole beneficiary of the GRAT this debtor had the exclusive right to benefit from trust income. Secondly, because the debtor’s estate was not subject to estate tax at current levels (plus reasonable appreciation and expected increases in the estate tax exemptions) there did not seem to be a strong estate tax justification for the trust. GRAT planning is an effective “estate freeze” tool for people with taxable estates and appreciating assets; that was not the case here. An estate tax annuity is an effective asset protection tool for people who can demonstrate a clear tax advantage and motivation.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida

Tenants By Entireties Of Money Held In Third Party Escrow Account

I came across an interesting case involving tenants by entireties. A husband and wife had an entireties account at their bank. They wanted to buy a parcel of real estate and title the property in the wife’s name. Normally, such transfer would not be a fraudulent transfer against either the husband’s or the wife’s individual creditors as the T by E account is exempt. The couple wrote a check from the entireties account to an escrow agent who was handling the real estate closing. They instructed the agent to hold the escrow as tenants by entireties money. The sale closed, and the escrow agent transferred the money to the seller. A creditor of the husband challenged the transaction as a fraudulent conveyance arguing that the money lost its entireties status when it was deposited in the bank account owned by the escrow agent.

The appellate court ruled there was no fraudulent conveyance. The money remained an entireties asset in the bank even though the interim bank account was owned by the escrow agent and not by the husband and wife. The court ruled that the husband and wife through their instructions to the escrow agent clearly intended the money to remain their entireties money when it left their entireties account to be held by the closing escrow agent. The case was decided by the 2nd DCA and is styled Snyder v. Dinardo.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida